A security guard stands beside a logo of the Bangko Sentral ng Pilipinas (Central Bank of the Philippines) posted at the main gate in Manila, Philippines April 28, 2016. (Reuters Photo/Romeo Ranoco)

Philippine C.Bank Holds Rates, Unfazed Over Price Pressures

BY :ENRICO DELA CRUZ AND NEIL JEROME MORALES

DECEMBER 15, 2017

Manila. The Philippine central bank kept its key interest rate steady on Thursday (14/12), dismissing concerns the economy is at risk of overheating from strong domestic demand and investments.

The Southeast Asian nation remains one of the fastest growing economies in the region, but inflation is expected to remain well-behaved, giving policymakers room to keep monetary policy steady even as the United States is set for a cycle of higher rates.

The benchmark rate was kept at 3.00 percent. The interest rates for both overnight lending and deposit facilities and the reserve requirement ratio were also left unchanged.

"Prospects for domestic economic activity are likely to remain firm owing to buoyant consumer and business sentiment and ample liquidity," Bangko Sentral ng Pilipinas Governor Nestor Espenilla said in a statement read by deputy governor Diwa Guinigundo.

Thirteen of 15 economists polled by Reuters had forecast no change in monetary settings at the central bank's last policy meeting for this year, while two predicted a 25 basis point hike. Two economists had projected a cut in the reserve requirement.

The central bank maintained its inflation forecasts for this year through 2019. It expects 2017 inflation to average 3.2 percent and hover at 3.4 percent next year. The forecast for 2019 is also at 3.2 percent.

A tax reform bill, which could be signed into law soon, may have "transitory" effects on consumer prices, but various mitigation measures could temper its impact on inflation, Espenilla said.

Annual headline inflation in November cooled for the first time in five months, but core inflation quickened, indicating pressure remains.

Economists calling for tighter monetary policy have warned the economy runs the risk of overheating due to the double-digit rise in credit growth, rapid increase in investment and a stellar pace of economic expansion.

But the central bank continued to temper concerns about price pressures.

"The so-called overheating concern due to high credit growth is at least misplaced. The economy continues to grow, and an economy that is growing needs robust provision of domestic credit," Guinigundo told a news conference.

The country's policy settings have remained steady since the central bank raised rates by 25 basis points in September 2014, as inflation has been within its comfort zone despite robust economic growth.

Capital Economics economist Alex Holmes expects policy rates to be left on hold throughout next year.

"Many of the current overheating fears are centered on the strength of the economy and the rapid pace of credit growth. But GDP growth is not exceptionally fast given the country's level of development, and is broadly in line with what we estimate to be its trend rate," Holmes said in a statement.

The Philippine economy has posted growth of more than 6 percent over the past nine quarters.

Reuters

SHARE
TAGS:
#Policy